E1- The classification of the business according to its ownership, and an explanation of the benefits and constraints of this type of ownership.

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Unit 1 Business at work

To Mrs Gray,

I have been asked to produce a detailed business report of one medium size or large business. My well- planned business report should contain:

  • The objectives, organisational structure and communication channels that operate within the business.
  • An examination of how these factors, interrelate in a way that can affect the success of the business.
  • An explanation of how quality assurance and control assurance and control systems help the business to add value to its products.
  • Consideration of alternative methods of quality assurance and control.
  • Consideration of how well the business is meeting its objectives.
  • An explanation of the impact of ICT upon the internal and external communications of the business.

E1- The classification of the business according to its ownership, and an explanation of the benefits and constraints of this type of ownership.

Mixed Economy – Businesses fall into two categories: A Private Enterprise or a Public Enterprise. In private there are businesses such as sole proprietors, partnerships, limited companies and franchises. In the public section you have public corporations, government departments and local authorities. I have written detailed descriptions of some of these below.

Sole Trader - A sole trader is a one-person business, commonly found in trades where only small amounts of finance are required to set up and where there are very few advantages to the existence of larger organisations (e.g. hairdressing, newsagents, market traders). Sole traders often employ waged employees, but they alone have to provide all the finance (often savings and bank loans) and accept all the risks of the business venture. In return, they have full control of the business and enjoy all the profits. A sole trader faces unlimited liability for his/her debts and it is referred to as an unincorporated business – this means that there is no legal difference between the business and the owner.

Partnerships – A partnership consists of between 2 and 20 individuals. Each partner is responsible for the debts of the partnership and therefore you would need to choose your partners carefully and draw up an agreement on the responsibilities and rights of each partner. Partnerships are relatively easy to set up and will generate more capital. The most common examples of a partnership are doctor’s surgeries, veterinarians, accountants, solicitors and dentists. Most partners in a partnership face unlimited liability for their debts. The only exception is in a Limited Partnership. This is where a partnership may wish to raise additional finance, but does not wish to take on any new active partners.

Private Limited Company - Often private limited companies are small, family run businesses which are owned by shareholders.

Each shareholder in a private limited company MUST be a part of the business and under no circumstances can any shares be sold to members of the general public. Each share entitles the owner to 1 vote at the company’s Annual General Meeting (AGM) and also to a share of the company’s profit at the end of the financial year (a dividend).

Each shareholder has limited liability for the company’s debts and can, therefore, only lose the value of their investment in the company. A Company is run by a Board of Directors (who are elected by the shareholders) and this is headed by a Chairman.

Public Limited Company (PLC) - just like a private limited company, a PLC is an incorporated business, is run by the Board of Directors on behalf of the shareholders and has an AGM at which shareholders vote on certain key issues relating to the company. The main difference between a PLC and a private limited company is that a PLC can sell its shares on the Stock Exchange to members of the general public and can, therefore, raise significantly more finance than a private limited company.

If a private limited company wishes to become a PLC, then it must change its Memorandum and Articles of Association and re-submit them to the Registrar of Companies. If the company is considered to have acted legally and for the best interests of its shareholders, then it will be issued with a new Certificate of Incorporation and also with a Certificate of Trading, which will allow it to sell its shares on the Stock Exchange. The price of the shares will then fluctuate according to investors’ perceptions of the PLC. It is often the case with a PLC that the owners of the company (shareholders) will wish the PLC to make as much profit as possible, so that the shareholders will receive a very handsome dividend per share. However, the Board of Directors and the management will often wish to devote some of the PLC' s resources to growth and diversification (such as the introduction of new products) and this will clash with the shareholders’ desire for maximum profits. This is known as the divorce of ownership and control. The PLC has to publish its annual accounts (known as disclosure of accounts) and therefore is extremely vulnerable to investors’ and bankers’ perceptions about its progress and success. Following on from this, a PLC is also at risk from a take-over from an outside body, if they manage to build up over 50% of the shares in the PLC.

Franchise – This is a business, which is based upon the products, name, trademarks, logo’s etc. of an existing successful business which gives that business the right to manufacture, service or sell its products.

Public Corporations - The public sector refers to all the businesses and organisations which are accountable to central or local government. They are funded directly by the government and they tend to supply public services rather than produce products for a profit. Central government pays for the public goods and merit goods through taxation (e.g. Income Tax), whereas local governments pay for the services they provide through Council Tax (formerly Community Charge and, before that, through Rates).

Charities – There are over 170,000 registered charities in Britain which are primarily set up to relieve poverty, advance education, advance religion and to generally benefit the community.

Argos’ ownership- Argos is owned by GUS plc, which is run by a board of directors. It sells its shares on the stock exchange to members of the public. GUS is a Public Limited Company. The benefits of this are that the shares can be traded publicly on the stock exchange and so there is no maximum number of shareholders. The limitations of this however are that the company has a separate legal identity and so can be sued.

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E2- A clear description and explanation of the objectives of the business.

Business objectives are what an organisation sets out to achieve. A business creates plans to enable it to achieve these objectives. The objectives and plans that an organisation creates are determined by balancing the requirements of the various stakeholders in the organisation. The stakeholders are the individuals or groups that are affected by and have an interest in how the business is run and what it achieves.

Making a profit – This is one of the main objectives so that it enables the business to ...

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